The man who ran Britain’s City watchdog during the 2008 financial crisis believes a “Hard Brexit would be very bad for us” and believes the UK should aim for a “soft Brexit with some degree of control over free movement of people.”
A “Hard Brexit” is the term applied to the scenario where Britain severs all ties with the European Union when it leaves, reverting to World Trade Organisation (WTO) rules to trade with the 27-member bloc. The Treasury estimates that a “Hard Brexit” could cost the UK up to £66 billion a year.
In an interview with Business Insider, Lord Adair Turner said: “I think if we literally end up at the end of this process with no membership of a customs union, no membership of the single market and we are literally just straight outside on WTO-terms, I think that would be quite a shock to the economy and we would be significantly worse off by 2022 than we otherwise would be.”
Lord Turner ran the Confederation of British Industry (CBI) in the mid-1990s, before becoming vice chairman of Merrill Lynch Europe from 2000 to 2006. He then served as head of the UK’s former financial watchdog the Financial Service Authority from 2008 to 2013, taking the jobs on the eve of the global financial crisis sparked by the US mortgage-backed securities bubble.
He is now chairman of George Soros’ economic think thank the Institute for New Economic Thinking and this year authored “Between Debt and the Devil” on the global financial crisis.
Lord Turner told BI that a Brexit deal along the lines of Norway or Switzerland’s relationship with the EU could be “an ideal solution.” Norway is not in the EU but a member of the European Economic Area. It contributes to the EU budget and accepts free movement of people from the EU to Norway. Switzerland has a similar arrangement.
Anybody who thinks Brexit is straight forward is really not focusing on the reality of the situation… There’s no certainty we’ll end up in a sensible space.
However, Lord Turner said: “On the other hand, Norway essentially has to accept free movement of people. Given the vote, given the fact that I do think there are some disadvantages to free movement of people that I think led legitimately to the vote, I think the government does have to end with a deal that has significantly more restrictions on the free movement of people than, for instance, Norway. I don’t think you can just do a copy of the Norway deal.”
Lord Turner said his time chairing the Low Pay Commission, which advises the government on minimum wage, from 2002 to 2006 convinced him that “large-scale immigration would tend to depress equilibrium wage rates for the somewhat lower skilled working class.”
He says: “You’ve got to do some trade-offs on this [immigration] because you’ve got to get something which is pretty close to some sort of membership of the single market or at least the customs union. That’s where ones got to aim for.”
“The challenge is to get something which is not a hard Brexit but is a soft Brexit with some degree of control over free movement of people. That’s the space that intelligent negotiation on both sides has to find. Otherwise, I think there are disadvantages for us and the rest of Europe.”
Lord Turner believes such a deal is “possible with some intelligence and flexibility on both sides.”
But he warns: “What it will require on the British side is possibly — and I know this is anathema to the Brexiters — some category of net contribution to the budget. It could be not a net contribution to the European Union budget but very specific budgets, like the scientific research budget. You could make it significantly less.
“There may have to be some acceptance of a degree of jurisdiction of single market rules. Again, to the Brexiters that’s an anathema because they say the whole thing is about sovereignty and not accepting the role of the ECJ [European Court of Justice]. But, actually, the WTO has a set of binding rules which bind sovereign states. The whole idea that there is absolute sovereignty in the arena of international trade is actually a bit of a delusion.”
Despite Lord Turner’s belief that a deal can be reached that benefits all parties, he says: “Anybody who thinks Brexit is straight forward is really not focusing on the reality of the situation… There’s no certainty we’ll end up in a sensible space.”
He fears that negotiations could easily turn into “a competitive nasty divorce which harms both sides.”
Lord Turner on the Remain campaign: ‘It would have been quite difficult for me to have played a role’
Lord Turner “passionately wanted us to stay in Europe” but did not involve himself in Remain campaign because he felt the campaign did not have a serious answer to the immigration issue and he believed it “was overstating the short-term economic dangers in a way which I think was counterproductive.”
“I think George Osborne’s punishment budget was one of the most politically inept and counterproductive movements I’ve ever seen,” he told BI. Shortly before the referendum on European Union membership, then chancellor George Osborne promised an emergency budget if Britain voted for Brexit that would raise income tax and slash education and NHS spending. The budget was never enacted.
Lord Turner says: “It was bound to make people want to vote to leave because it was so obviously absurd. When you threaten people with something that is obviously nonsense and absurd and seen as bullying, that will make people more likely to vote against you than vote for you.
“I still think there will be a net negative effect but I just didn’t think it would be as bad or as sudden as the Treasury and other’s suggested. So it would have been quite difficult for me to have played a role.”